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Old 12-06-2012, 10:01 AM   #1
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Financial Help/Direction Please

So I figured I would hit up you guys because I am sure there are at least a few people on here that understand money, investments, etc. So I am graduating college in a week or so here and am starting a new job in June. I have a current job that I will go to FT and hold until then. I will be making pretty good money for a recent college grad and I am looking for what I should do with the money. I currently have 11k in student loans that I would like to make go away as soon as possible and no other debt other than that. I don't want to piss away the money, and if I do nothing productive with it I will. I am planning to put 10% into the company's 401k right from the get go and am not sure what to do with the rest. Any guidance here?
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Old 12-06-2012, 10:24 AM   #2
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You have the right train of thought IMO, pay off old debt as fast as you can. The 10% in 401K is the part i am sketchy about. For starters only contribute to your 401K up to the max that your company matches (IE 50 cents on the dollar up to 6% is what my company does). While saving is always a good idea, I just think its a waste to contribute more than your campany matches. Your money would be better used in other ways.

Also, build you a nest egg too. You should have enough in savings to support you for 6 months (i think) should something happen like an injury or loss of employment.

One other thing too, I have been reading (I promise I aint trying to be political IMO all of em are crooks..... dems . . . . gop.... all of em) that the next thing the feds want to take is IRAs (Individual Retirement Accounts) and 401Ks. Basicly they want to take from those that HAVE such retirement funds and give it to those that DO NOT HAVE retirement. This would affect my decision on what to save and where to save it also.
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Old 12-06-2012, 04:40 PM   #4
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The first thought I had was exactly what Tim wrote, before I even read it. KEEP IT SIMPLE FOR NOW: don't contribute more to your 401k than your employer matches, and put everything you have left towards paying off the student loan. Once that is paid off, you can worry about what to do next.
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Old 12-06-2012, 04:43 PM   #6
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Quote:
Originally Posted by aphex View Post
^^^

This is probably much more in line with what most reputable financial advisers would tell you though.
Well... Make a case for why your direction is the best. I am not saying that one way is right or wrong, but if a suggestion is from left field I would like some support.
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Old 12-06-2012, 05:05 PM   #7
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OP, the most important thing is that you are thinking about it. Most guys who start earning money start spending it as fast as it comes in, and once you are in that habit, and you have built up debt, you can never get ahead again.
I can't give financial advice, but I can say that you are on the right track to want to put a portion of it away from the get go.
A general guideline is to save a quarter of your income, use a quarter for living (food, utilities etc.), quarter for home, and quarter to spend (enjoy, treat yourself). Now, although that is very broad, the idea is to start with a fixed plan, in whatever proportions you want to split it up, and you will always have savings, and you will always be able to treat yourself to some nice things while the other expenses are covered. By following this style, even if you loose your job and get something that only pays half of what you used to make, you will be able to pay for your house and other living expenses until you can get something better again.
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Old 12-08-2012, 03:58 PM   #8
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memario1214,

You say that you will start your new job in June, but will be working a FT job until then. Quite honestly, I'd spend the next 6 months piling up as much cash as possible from the current work. If you could swing it, maybe even work a second job for the next 6 months. I wouldn't put anything into retirement or pay down the student loan beyond the normal payment until you start the new job. (This is just in case something happened and the new job fell through. Stranger things have happened, especially in this economy.)

Once you start the new job, here is what I'd recommend:

1) From day 1 on the job, contribute to the 401k up to the amount needed to maximize the employer match. That is free money, so definitely take it. You'll have to get the plan details to know how your particular match works. I would go with a Roth 401k if one is available from your employer.

2) Continue to pile up cash for 90 days just to make sure the job works out. At that point, keep $1000-$2000 in cash and pay the rest on the student loan. Focus on paying that thing off as quickly as possible.

Once the loan is behind you, I'd open up a Roth IRA. I would budget my savings between building up the emergency fund and putting money into a Roth IRA. The goals there would be to get six months worth of basic living expenses in the emergency fund. You can contribute up to $5,000 per year into the Roth IRA. I'd invest the Roth IRA in mutual funds. You can get some help with that, if you like.

One thing for sure, the money you pump into retirement accounts in your 20s makes a huge difference at retirement time.

If you want more information, try reading some of Dave Ramsey's books. He has a new one called "Complete Guide to Money" that might be right up your alley.
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Old 12-08-2012, 04:30 PM   #9
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Aphex has a point on the student loans.

That is a low-interest rate loan, and as long as the interest rate is lower than the inflation rate, it is not a bad debt to have sitting out there.
Remember, 2012 dollars are worth more than 2020 dollars will be. Imagine if you could take a wad of cash back to 1980 and pay off your house?
Same idea. If the interest rate on the student loan is 2%, and the inflation rate is 5%, then the loan is 3% (per year) "cheaper" to repay.

On high interest loans, credit card debt, etc? Yes... conventional wisdom holds true to get it paid off as quickly as possible.

But that is assuming that the inflation rate skyrockets. That hasn't happened, and financial people smarter than us have been saying "inflation is coming" for the last 10 years. Something in the economy, or the manipulation of it, has held it off.
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Old 12-08-2012, 04:41 PM   #10
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Read books about investing. Start here,

http://www.amazon.com/dp/0793107024/?tag=779xz3479-20

See if you can find it for free. Old fashoned but still viable in today's market.

I do not see why everyone is saying to invest the minimum in a 401K. The 401K is pre-tax dollars. I did really well by maxing out my 401K 1st then maxing out both my wifes and my Roth IRA. We even had extra money to put into a txable brokerage account every month. We did this for close to 20 years and it sure has made retirement a lot nicer.

I will tell you that there is only one thing worse than being old in America and that is being old and poor in America.

It sounds like you are already on the right path to financial freedom.
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Old 12-08-2012, 06:37 PM   #11
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Quote:
Originally Posted by 95SLE View Post
I will tell you that there is only one thing worse than being old in America and that is being old and poor in America.
IMO... The one thing worse than being old and poor in America is being old and poor anywhere else in the world.
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Old 12-08-2012, 07:52 PM   #12
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Quote:
Originally Posted by 95SLE View Post
I do not see why everyone is saying to invest the minimum in a 401K. The 401K is pre-tax dollars. I did really well by maxing out my 401K 1st then maxing out both my wifes and my Roth IRA. We even had extra money to put into a txable brokerage account every month. We did this for close to 20 years and it sure has made retirement a lot nicer.
I'm certainly not saying that maxing out a 401k contribution is a bad idea. In fact, it is a great idea if you can swing it.

The maximum allowable 401k contribution for 2013 is $17,500 and the IRA contribution is limit $5,500. Anyone who can afford to sock away $23k a year into retirement should definitely go for it.

Since the OP is a brand new college grad, I was assuming that the total annual savings was going to be less than $23k per year to start with.

If your employer matches, then contributing the amount to get the maximum match is just what you should do FIRST.

After getting all the matching 401k money, I'd put my next available money into a Roth IRA up to the $5,500 contribution limit (2013 max for people under 50). I prefer to see that go to an IRA because you usually have more investment options than a company sponsored 401k. I would also recommend making the Roth IRA contributions early on because in later years, if you are making more money, you may be subject to income phase out limits that prevent you from adding to it. Sock those Roth IRA dollars away while you can.

Once you've done all you can with IRAs, I'd circle back to pumping more into the 401k even though it isn't matched. As you note, that does lower your current tax bill.
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Old 12-08-2012, 07:54 PM   #13
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Quote:
Originally Posted by Buzz View Post
After getting all the matching 401k money, I'd put my next available money into a Roth IRA up to the $5,500 contribution limit (2013 max for people under 50)
How does this change for those 50+?
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Old 12-09-2012, 04:01 AM   #14
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Quote:
Originally Posted by Rich91710 View Post
How does this change for those 50+?

Rich:
If you can you are able to put an extra $5500 into the 401K plan as a catch up contribution for 2013. Your regular contributions cannot exceed $17,000. As it has always been there is no limit to the amount an employer can contribute to the employees 401K plan.

You can also add an additional $1000 to a Roth or regular IRA. The 2013 limit on the IRA has been increased to $5500 up from $5000.


Colton:
Just starting out towards your retirement is a big step. Yes the government can and will make changes to both the IRA and 401K savings plans. But presently they are the best options you have to save money is some sort of a tax deferred vehicle.

When you approach retirement look into Annuities. I am sure they will change dramatically. Annuities offer another vehicle to defer paying taxes on income gains from dividends. Annuities have really changed over the last 10 years with dramatic changes in the last 3 years. I certainly could not get the favorable conditions on our current annuity that I received when purchasing it at 60 years of age. The companies that sell annuities have lowered the % rate on money that can be earned and the cost of certain riders has increased.

Look at some of the books on the market and read. The book, The Warren Buffett Way, is an great book dealing with stock selections and in general what to look for when investing money in the stock market. At this point the book has a few years on it but the principles are still valid in todays market.
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